OCR Holds at 2.25% — What It Means for NZ Private Credit Investors

The Reserve Bank of New Zealand held the Official Cash Rate at 2.25% on 8 April 2026 — a decision shaped by an unusual combination of rising inflation and a fragile domestic economy.

The trigger: the ongoing Middle East conflict has disrupted global oil and gas supplies, pushing fuel prices sharply higher. The RBNZ now expects headline inflation to rise to around 4.2% in the June quarter. At the same time, New Zealand's economic recovery remains subdued — unemployment is elevated and business confidence has fallen. The Committee chose to hold, watching carefully rather than acting prematurely in either direction.

For investors, this decision raises a question that is becoming harder to ignore: in a world of persistent uncertainty, where does yield come from?

The Term Deposit Problem

When the RBNZ began cutting rates from their 2023 peak, term deposit rates followed. Many NZ investors who had been earning 5.5–6% on six-month deposits saw those returns compress significantly. Today, competitive six-month term deposit rates sit in the 4–5% range — and the RBNZ's decision to hold suggests they are unlikely to move sharply higher in the near term.

What most investors don't see is that term deposit rates often lag the OCR on the way up, just as they lag on the way down. Banks set their own margins. The RBNZ itself has noted that term deposit rates, particularly at the most popular six-month term, "have not increased to the same degree" as wholesale rates following the recent market volatility.

The Private Credit Alternative

Private credit — secured lending to NZ businesses and property owners — operates differently from term deposits in ways that matter in this environment.

Loan rates in private credit are typically set at a spread above market benchmarks and reflect the actual credit risk of the borrower, the security provided, and the duration of the facility. Short-duration lending (6–18 months) means rates on new facilities can adjust relatively quickly to changing market conditions.

For Capital Connect, our target return for investors in Capital Connect No.2 LP is 9–11% per annum net — generated from contractual borrower interest on secured NZ lending facilities. This return is not dependent on equity market performance, property price appreciation, or OCR movements.

What Should Investors Watch?

The RBNZ has signalled it may need to raise rates if Middle East-driven inflation proves persistent. The next decision is on 27 May 2026. For wholesale investors assessing private credit, a few things are worth watching:

Duration risk: short-duration loans reprice faster as market rates move. This is a structural advantage of private credit over longer-duration fixed instruments.

Security quality: in uncertain economic conditions, the quality of collateral and the conservatism of loan-to-value ratios become more important, not less.

Diversification: returns generated from contractual interest on secured NZ assets are largely uncorrelated with listed markets — an increasingly valuable characteristic when equity markets are volatile.

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This article is general information only and does not constitute financial advice. Investment in Capital Connect No.2 LP is available to eligible wholesale investors only as defined under the Financial Markets Conduct Act 2013. Target returns are indicative only and not guaranteed.